updated 8/18/2004 11:30:23 AM ET 2004-08-18T15:30:23

China has agreed to step in and pay Russian rail fees to ensure that it continues to receive Yukos oil if the company is unable to cover the transport costs, officials at Russia’s rail transport monopoly said Wednesday.

“China will pay for everything if Yukos encounters problems with payment,” said Russian Railways president Gennady Fadeyev, according to the Interfax news agency. Russian Railways spokesman Anton Shapovalov confirmed that China promised to pay.

Yukos sends about 124,000 barrels of crude every day by rail to China, which is already the world’s No. 3 oil importer and has seen its consumption increase annually as the economy grows.

Facing a crushing $3.4 billion back taxes bill, Yukos has warned that bankruptcy and production cuts might be just around the corner. Its bank accounts are frozen and it is prohibited from selling assets to raise money.

Yukos shares plunged Wednesday on Russia’s ruble-dominated MICEX exchange, causing officials to halt trading twice. By evening, the stock had fallen more than 10 percent. On the dollar-dominated RTS exchange, Yukos shares had plunged nearly 12 percent.

The drop followed the Moscow Arbitration Court’s rejection late Tuesday of Yukos’ appeal of a decision by bailiffs not to use the company’s 30 percent stake in the Sibneft oil company as collateral for the tax bill.

Yukos so far has managed to pay off only $750 million of the 2000 bill, and bailiffs have seized its main subsidiary, Yuganskneftegaz, which is being evaluated for sale. Authorities, meanwhile, have been investigating Yukos tax records for the following years, and observers say the total debt could grow to $10 billion.

Fadeyev told Interfax that Yukos has already paid about $24.1 million in rail fees, which should cover its shipments through September. Company officials have repeatedly warned, however, that Yukos’ ruin might come even sooner.

The web of legal cases against Yukos and its jailed founder, Mikhail Khodorkovsky, are seen by observers as an attempt to punish the oil tycoon for meddling in politics. The Kremlin has cast the affair as a crackdown on shady tax schemes and corruption. Yukos denies those allegations.

Khodorkovsky, arrested in October, is on trial along with business partner Platon Lebedev on charges including fraud and tax evasion. The court is expected to begin hearing prosecution witnesses Thursday.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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